While small businesses represent a key source of employment and income in the United States, one challenge faced by many small business owners is how to deal with retirement for themselves and their employees. According to the U.S. Small Business Administration (2007), there are about 25 million small businesses in the United States and they employ more than 50% of the nation's private workforce and are consistently responsible for creating around 75% of net new jobs. Small businesses have been considered as the economic engine of many American communities but, on the other hand, the accomplishments of small businesses come with challenges and risks. For example, following the discussion about small business health care crisis that has received a lot of publicity in recent years, many scholars and policymakers have pointed out that the United States is facing a small business retirement crisis that may affect far more small business owners and employees (Guard, 2006; Smyth, 2006; Devaney and Chien, 2000).
According to the statistics from some recent surveys (Girard, 2006), more than 60% of American small business owners do not offer any retirement plan to their employees and 47% of small business owners are unsure about how they plan to handle their own retirement. The situation is much worse for sole proprietors who work by themselves as only 6% of them have a 401(k) plan. According to the 2003 Small Employer Retirement Survey conducted by the Employee Benefit Research Institute (EBRI, 2003), 43% of the small companies not offering a retirement plan to their employees said they were not at all likely to start a plan in the next two years, up from 32% in the survey of 1998. A study by Fidelity in 2006 suggested that most small businesses realized the benefits of offering a retirement plan but many did not realize a plan was available to them (Fidelity, 2006). The same study also reported the 26% of the small business owners surveyed by Fidelity believed there was a lack of 401(k) plans to suit their company's small size and 40% of the respondents perceived cost as the major barrier in offering a 401(K) plan to their employees.
There are many studies on retirement planning and programs in the literature but few of them have focused on small businesses. Specifically, there is a dearth of information on how small business owners deal with retirement for themselves and their employees, especially for businesses with no employees or a small number of employees. This study is motivated by this lack of information on small business retirement plan participation and the need for information. Our major objective is to collect primary data through a mail survey of Vermont small businesses with less than 20 employees and to use the data to analyze how Vermont small businesses deal with retirement planning and financial management.
Our objectives were accomplished in two ways: (1) a survey of Vermont small business owners was developed and conducted to collect primary data in 2003, and (2) the primary data collected from the survey were analyzed to test alternative hypotheses and to derive conclusions using appropriate statistical methods.
A random sample of 3,000 Vermont businesses with less than 20 employees was purchased from Survey Sampling, a research firm located in Fairfield, Connecticut. The 3,000 businesses were randomly selected by the research firm from all Vermont businesses with fewer than 20 employees. The business size was limited to fewer than 20 employees based on the focus of this study. Information from the research firm includes business name, address, size, phone number, industrial code, etc.
A survey questionnaire was developed at the University of Vermont. It included questions about business ownership, participation in retirement plans, needs for retirement and financial management information and the preferred way to receive such information, and demographic information, etc. …